On 26 June 1998 I submitted to the Committee
an Explanatory Memorandum on the Commission's report and proposal
on the structure and rates of excise duty on cigarettes and other
manufactured tobacco products. I also submitted a supplementary
EM on 26 March 1999. This letter informs the Committee of subsequent
developments on this dossier

As you know the Government's position is reluctantly
to accept that it would not be possible to achieve a meaningful
restructuring of the Community tobacco taxation provisions under
the present proposal. However, we could not accept that the Commission's
periodic reviews, which are the principal means of achieving such
a substantive restructuring, should be decreased in their frequency
from every two years at present, to every five years (as proposed
by the Commission) or even every four years (as proposed by the
German Presidency). Therefore the UK has continued to oppose this
with very little support from other member States.

As a direct result of the Government's stance,
the Presidency have now suggested a further compromise with the
Commission reviews being, "not less frequently than every
three years and for the first time not later than 31 December
2000" and have included this on the agenda for ECOFIN on
25 May. This is a significant move from the original Commission
proposal and indications are that no other Member State would
back us if we were to hold out for any further movement. I have
therefore concluded that this latest compromise is unlikely to
be improved upon and therefore the Government should now be prepared
to indicate our acceptance of the Presidency's latest compromise.
A document for formal consideration by the Council should follow.
This, of course, would be subject to your scrutiny with a further
EM being submitted.

Thank you for your letter of 20 May, bringing
us up to date with progress on this matter. When Sub-Committee
A considered the letter at its meeting on 8 June, it shared your
regret that further progress had been impossible, but asked me
to congratulate you on having persuaded the Presidency to put
forward its compromise proposal, which at least means that the
policy will come up for consideration again before too long.

We look forward to receiving the formal proposal
and your Explanatory Memorandum in due course.